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How to Use Your Budgeting Tool for What-If Analysis

January 22, 2016
Scenario Planning
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The budgeting process for most companies occurs over several months. You prepare the budget model by adapting last year’s Excel spreadsheets, plan and distribute them to each department head, and answer their questions about how to use it. Then, once they’re done, you proceed with the painful process of consolidating all those spreadsheets together to create your overall budget.

Keeping all the pieces straight and tracking which have been updated and which haven’t, isn’t so easy. Unfortunately, sometimes your best analyst spends their time managing the logistics of the budgeting process instead of being able to do the actual evaluation, analysis, and updates to the plan in order to make it helpful for running your business.Is This You?Half of the preliminary budgeting spreadsheets have been integrated into the Master budget workbook. And something changes.A new criteria is introduced. Your company has the opportunity to acquire a competitor. Great news! ...Or is it? While you try to keep your focus on the details of the deal, your mind curses at the fact that the budget for nearly every department will be affected. You start thinking of the logistics of essentially starting over with the spreadsheet distribution process. Re-consolidating everything into the Master. You hope the new VP of Sales can work his numbers up quickly since they’ll have such a large impact on the other divisions.

Consider this. What if you didn’t need to operate on hope? What if version control of your budget model wasn’t a concern? What if your best analyst focused on analyzing the impact of the purchase rather than using their time to manage the logistics of your budgeting model?How quickly could you use your current budgeting tool to determine the ROI of the proposed purchase if it finalized in two months verses in six months? How valuable would it be to know how your current year cash flow will be affected by the integration of their book of receivables in those two scenarios?Acquisitions don’t happen every day for most of us but things do change. You need to be ready for it.

Something new .Let’s add a new product. How will it affect your inventory? Will your current cash flow be sufficient to cover the ramp up time? How would the additional staff to launch it affect your bottom line?When you use a modern budgeting tool, life can get easier. If you were using Budget Maestro today, you can pull in your YTD actuals, apply your budget model to the remaining months of the year and see where things are at. Now save that set up under a new name, “Scenario 1.” Enter in the specs of the new product that’s being considered. The cost, price, anticipated sales volume, etc.Immediately you can review at the impact on your income and expenses and your bottom line. Check your cash flow reports. Will money be freed up when the revenue starts flowing? Do you need to anticipate investing it? Or do you need some short-term funding to get your stock established before you can do that launch?These situations happen for us every day. I’m sure you’ll have a gut feeling of what the results will be. Does that match what you came up with in completing this 20-minute exercise? What if it doesn’t?Save where you’re at now as “Scenario 2.” Update the proposed price point and cost of the new product if you were to make a luxury version of it instead. Sales volume may be lower, but your new profit margin could more than make up for it. You can run those numbers in just a few minutes and compare them on screen to see which product helps your bottom line more.How quickly would you get to the same answer using your current spreadsheet method? Modernizing your budget process can help your company with decision making year-round.

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